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Identifying that portfolio is not straightforward. The earliest definition comes from the capital asset pricing model which argues the maximum diversification comes from buying a pro rata share of all available assets. This is the idea underlying index funds. Diversification has no maximum so long as more assets are available. [7]
Fixed income diversification For bonds, you might choose funds that have short-term bonds and medium-term bonds, to give you exposure to both and give you a higher return in the longer-dated bonds.
Bekkers, Doeswijk and Lam (2009) investigate the diversification benefits for a portfolio by distinguishing ten different investment categories simultaneously in a mean-variance analysis as well as a market portfolio approach. The results suggest that real estate, commodities, and high yield add the most value to the traditional asset mix of ...
( ()) is the market premium, the expected excess return of the market portfolio's expected return over the risk-free rate. A derivation [ 14 ] is as follows: (1) The incremental impact on risk and expected return when an additional risky asset, a , is added to the market portfolio, m , follows from the formulae for a two-asset portfolio.
The meaning of "fair" depends, of course, on whether one considers buying or selling the security. Examples of securities being priced are plain vanilla and exotic options, convertible bonds, etc. Once a fair price has been determined, the sell-side trader can make a market on the security.
Rates for these accounts are usually variable, meaning they can go up or down as market conditions fluctuate — although some may come with a fixed rate during an introductory period.
A money market account works like your typical savings account: You deposit money into your account, and your deposit attracts an interest rate that compounds daily or monthly.
The Brownian motion models for financial markets are based on the work of Robert C. Merton and Paul A. Samuelson, as extensions to the one-period market models of Harold Markowitz and William F. Sharpe, and are concerned with defining the concepts of financial assets and markets, portfolios, gains and wealth in terms of continuous-time stochastic processes.